Best Option For A 401 K Rollover

Is an index annuity good for a 401 K rollover? Absolutely, it is one of your best options. It is very easy to do a direct transfer from the 401k  custodian.  It takes about 10-15 days and there are no income tax ramifications. Most 401k programs invest in mutual funds. Most of these funds are invested in the stock market and that means these funds are at risk for declines in the market. Recently, the markets have improved but in 5 years before that, 401k investors lost almost 50% of their assets.  To recover from a 50% loss, the market must go up 100% just to get back even.

401k programs are very popular but most investors are not aware of the charges in their 401 k. There are management fees and commission charges for buying and selling the stocks. This can ad up to 2% a year but these charges are not visible in your 401 k statements. Index annuities have no yearly charges and there are no losses when the market declines.  The only fees are surrender charges for removing funds before the surrender period is over. Most surrender periods are 5-7 years and most annuities allow 10% annual withdrawals  without any penalty. However, like a 401k, if funds are removed before age 59 1/2, a 10% penalty is imposed by the Internal Revenue Service. There are hardship exceptions to this rule and sometimes the money can be removed without incurring the IRS penalty.

Some annuities have an index where an investor can actually make money if the market declines.  Each year on the contract anniversary, the owner has the option to reallocate the annuity funds between different indexes such as the S&P 500, Dow Jones, Nasdaq 100 and the Russell.  Reallocation can be done up to 30 days after the contract anniversary.

Another advantage of rolling a 401 k to an index annuity is the lifetime income benefit. This is a new rider that has been added to annuities and it can make a huge difference in the amount of money available for retirement income.  This benefit can be activated without annuitizing the contract so it offers additional flexibility in retirement planning.  Most annuities guarantee a  5% growth rate on the income account.  When an annuity is issued, an income account value is set up to serve as the basis for determining the amount of income available to make lifetime income withdrawals. The income account value is not available to be taken as a lump sum but only to  determine the amount that can be taken as lifetime income payments.  The accumulation period usually lasts anywhere from five to seven years and can be renewed if the retiree is not ready to begin payments. The longer the accumulation period, the larger the lifetime payments will be.

Annuities also offer a medical benefit. If the annuitant is confined to a nursing home, hospital, or hospice facility the payout benefit is usually doubled. Also, some companies offer health solutions from the Mayo Clinic to help the annuitant live longer and feel better. Some annuities now offer long term care benefits for an additional annual charge.

So to summarize, an index annuity is an excellent option for a 401 k rollover. By generating stock market like returns with no risk, an annuity program can still generate a good return with no risk and the fees are much lower.

Deferred Annuity Versus Immediate Annuity

Deferred Annuity versus Immediate Annuity 

An annuity can be described as a mutual contractual agreement between an insurance organization and the insured. Through this financial agreement the insured receives regular payments usually after retirement. The concept of annuities is becoming more popular everyday. However, you would be surprised to know that this concept originated about 200 years ago. An annuity is generally issued by the insurance company through its licensed agents. Annuities can be classified mainly into two types: the  immediate annuity and the deferred annuity. You should apply for immediate annuity if you need the cash flow immediately. On the other hand, the deferred program builds up over time only to be converted as income in a later period. A crucial difference between both these annuities is that the deferred one can be purchased with a one time payment or with a chain of usual payments. The deferred annuity is definitely considered as a better investment for the future. It can prove to be an asset in your post retirement life. Immediate annuity will prove very useful for an individual who have received a good amount of money all of a sudden, and now wants to manage it properly. The concept of immediate annuity which is fixed has become more popular than any other immediate annuity. The reason for it is simple; it promises assured payments. But you can make good amount of profit with a variable immediate annuity as well. On the flip side, it has some risks and uncertainty involved with it as well. Therefore, it is important to prioritize your need before deciding on a particular plan. However, a deferred annuity can give you a sense of security.

The return from deferred annuities can be of two types. With the first type you are assured of receiving continuous monthly payments for a specific period of time. On the other hand, the second type will give you the option of acquiring a one time payment on the date of maturity. The annuity agreement will clearly specify the date when you can expect the income installments to flow into your account. This date is known as the maturity date. The best part of this type of annuity format is that you have the liberty to select the kind of return you want. However, you have to be very careful about the annuity quotes; they are crucial for acquiring the best annuity rates. You would do well to take some tips from some of the specialists in the trade. They would be able to guide you about the annuity quotes and the annuity rates in the right manner. Another good option is to take quotes from various companies; it will allow you to compare and study the rates perfectly. However, first you need to arrange for a handsome amount in order to enter the annuity agreement. The accumulated interest over your hefty deposit amount would ensure a bright and secure future. Therefore, deposit amount is important; the more you deposit, the better it is for you and your family. For more information check out

What Is An Index Annuity?


Welcome to the index annuity guide. The index annuity is one of the most versatile and timely investment options available today.

First, lets define an index annuity. The index annuity, also known as a fixed index annuity, or equity index annuity is a fixed annuity contract between a life insurance company and the policy owner which provides savings for retirement while providing the benefit of tax deferred growth. Also, the growth of the annuity is linked to an external equity or bond reference such as the Standard and Poors 500 Composite Index. However, the annuity is an insurance contract and the policyowner is not buying shares of any stock,  fund or index.

Now, let’s talk about one of the most important benefits of the index annuity. The ability of the contract owner to make stock market like returns when the stock market rises but never lose a penny when the stock market declines. Imagine going to Las Vegas and playing blackjack. Each time you won you got to keep your winnings but each time you lost, you got your money back.  For this benefit alone, almost every retirement plan should include an index annuity as a component of the overall plan.

Another important benefit  is the bonus. Some  insurance companies pay as much as 8-10% bonus on the initial amount invested. For example, a $10,000 initial premium with a 10% bonus immediately becomes $11,000.  If the account had 8% equity index gains the first year, the account would be worth $11,880 after the first year, a gain of 18.8%. Plus, the account value could never go below $11,880 unless withdrawals were made. That is why the index annuity is usually an excellent investment option for a risk averse investor.

Tax deferral is another important benefit of the index annuity. All earnings are tax deferred until withdrawn. Then only a portion of each payment is taxable because part of the payment is a return of premium. This could result in lower taxes if the owner is in a lower tax bracket during retirement. That may not always be the case, so proper tax planning is necessary when making withdrawals from an annuity or any tax advantaged investment such as an IRA or 401K.

Traditional savings plans such as CDs, money markets, mutual funds, and savings accounts are taxed every year.  By postponing taxes with the index annuity, the money will compound faster because interest is earned on the money that would have been paid in taxes.

Annuities are not life insurance, even though they are sold by life insurance agents and issued by life insurance companies. The Internal Revenue Service considers all annuities to be retirement plans so they are subject to the early withdrawal penalties if withdrawn before age 59 1/2.  An index annuity may be used to fund a qualified retirement plan even though they are not considered qualified for tax purposes.

Whereas life insurance is designed to create  an estate which is paid at the death of the owner, annuities are designed to liquidate an estate over a period of time by making payments to the annuitant for a specified time period or to the beneficiary in the event of the death of the annuitant.  This solves one of aging American’s greatest fears- running out of money.

The index annuity offers the potential for higher returns than the normal fixed annuity which pays a specified rate of interest each year. However, in years when the stock market is down the return on some index annuities is zero. This is much better than losing money which happens in most retirement accounts.

In summary, the index annuity can become a vital part of any retirement planning strategy because of its potential for high gains and no losses and attractive bonuses. In our next post in the index annuity guide, we will cover the working parts of the index annuity.